Thursday, March 26, 2009

Climate change: "harmonization"

Brian Fallow has an interesting piece in the Herald today about the government's plans to harmonise our ETS with Australia's, in which he highlights an important difference between the two schemes. New Zealand's carbon market is completely open - people are free to buy and sell permits internationally in search of the best price. This is a fundamental design feature, a requirement both of the limited size of our domestic market (which, if closed, could allow "strategic behaviour" - market manipulation and fraud - by large polluters), and of the need to allow first forest owners and then polluters access to sufficient buyers and sellers of credits.

Australia's market, OTOH, is closed. while it allows permits to be bought into the system, it does not allow them to be exported. And this makes the whole idea of harmonization rather pointless. It's even more pointless when you recognise that they have a price cap built into the system - something which can only work in a closed market.

The Australians will be unwilling to change these aspects of their market. Which means that "harmonization" for us means surrender: scrapping our own ETS and joining their one as a giant trans-Tasman market. Our polluters will be happy with that, as it gives them both a further delay and a whole new bunch of politicians to lobby and special plead at (as if the Australian ETS isn't bad enough already). It is also likely to mean lower joint targets, as the Australians are fundamentally uncommitted to serious action on climate change.

So, even when taken seriously, "harmonization" is simply a stalking horse for inaction - inaction we cannot afford.

Don't get me wrong - in the long-term, we need to work with Australia and other countries to link up our respective markets and effectively form one global carbon market. But all that requires is agreement on units and on what third-party units and reductions will be accepted (required in order to prevent "laundering" of shoddy "reductions"). The decisions we have already made in these areas are already compatible with other markets (particularly the EU), and so we shouldn't need to delay the implementation of our scheme at all. Anyone who says we do is simply engaging in deliberate foot-dragging.